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He FTSE 100 has suffered a rocky start to the year, with the index falling 3.36% so far in 2024. Last week was particularly painful, as Wednesday's (January 17) inflation jump from 3.9% to 4% dented hopes of an early interest rate cut.
Two growth stocks took a beating, but look much cheaper as a result. Should I take this opportunity to buy them at a discount?
Last week's biggest loser was the online grocery fulfillment specialist. Ocado Group (LSE: OCDO). I've been thinking about buying it for some time, and with the share price dropping 16.54% in a week, now might be my time.
Buy cheap stocks
For a time, Ocado was the stock of choice for investors looking for rapid share price growth, but its struggles to turn a profit have erased much of the shine. Its pre-tax loss actually increased in 2022, from £176.9 million to £500 million.
It's a problem for many growth stocks today, as rising interest rates drive up borrowing costs while inflation erodes the real-terms value of future earnings. Ocado's share price is down 22.01% in one year and 78.6% in three. There's a lot of pain for investors in that.
Profits have risen at Ocado Retail, boosted by a resurgence Marks & Spencer Group. The Ocado Solutions business recently signed its first automated non-food distribution deal, opening up a whole new market. He has also developed the Zoom fast delivery proposition, but faces tough rivals such as instacart, deliveryand Uber.
Profits are rising, but the group is not expected to break even until 2026. Before then, it will be a bumpy road. However, Ocado shares tend to fly when investor sentiment picks up. I'm seriously considering buying it while the mood is temporarily pessimistic.
luxury fashion brand Burberry Group (LSE: BRBY) was the FTSE 100's second biggest loser last week, down 9.41%. This is another stock I've wanted to buy for years, but was deterred by its high valuation, which was typically around 24 times earnings.
Stylish stocks, cheap valuation
I'm glad I held back, because the stock has had a rough patch, and not just last week. It is down 46.48% in a year, one of the worst performances on London's blue-chip index.
Burberry has been punished for last November's profit warning, when a global slowdown in luxury demand hit sales. Its 2024 operating profit is heading towards the lower end of the previously expected range of £552m to £668m.
Fashion brands sell a dream, but now the share price is trading at realistic levels. Burberry appears to be well valued, trading at just 9.9 times earnings. There's even a halfway decent income stream on offer, with an expected yield of 4.5%, covered at 1.8x.
This looks like another stock that will benefit when inflation and interest rates drop, which could happen in the spring or early summer. I would like to buy Burberry shares before then, if I can raise the money. It's not possible to buy everything I want, but for the first time in years, I'm seriously tempted to buy it before the market realizes the opportunity.